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This chapter begins by describing the concept of robustness and then introduces the most widely recognized robust approaches for portfolio construction: Robust statistics, shrinkage estimation, Monte Carlo simulation (portfolio resampling), constraining portfolio weights, Bayesian approach (Black‐Litterman model) and stochastic programming. The equal‐weighted portfolio (also often referred to as the...
This chapter discusses the two methodologies of robustness and ruggedness. They deal with being able to reproduce an analytical method in different laboratories or under different circumstances (inputs) without changing the results. Robustness is the characteristic of the process output or response to be insensitive to the variation of the inputs. The purpose of ruggedness is to determine the variables...
This chapter discusses the relative usefulness and shortcomings of employing purchasing power parity (PPP) in foreign‐exchange analysis. In order to obtain a solid grasp of the concept of PPP, it is necessary to first understand the law of one price. Economists often use PPP to ascertain the fundamental value in foreign‐exchange markets between two currencies. It asserts that the exchange rate between...
This chapter focuses on various aspects of scenario analysis and contingency planning. Scenario analysis is a methodology that seeks to provide a forward‐looking approach to risk management. Contingency planning is primarily concerned with robustness. In a complex dynamic environment such as the financial services sector, predicting the longer term future with any degree of accuracy is impossible...
The multi‐objective control and filtering problems for nonlinear stochastic systems with variance constraints are surveyed. First, the concepts of nonlinear stochastic systems are recalled along with the introduction of some recent advances. Then, the covariance control theory, which serves as a practical method for multi‐objective control design as well as a foundation for linear system theory, is...
This chapter presents an approach to detect corrosion on FeCo pole tip. The developed approach improves the accuracy, specificity, robustness, as well as rapidness of detection in order to handle the problem under the time constraint imposed by the industrial environment. The approach starts by extracting the top‐shield region of the FeCo pole tip from the input images. A specially designed filter...
ITS‐90 temperature measurements above the copper point are performed by extrapolating the spectral radiance from a fixed point (Ag 961.78°C, Au 1064.18°C or Cu 1084.62°C) using the Planck law for radiation. This extrapolation will mathematically induce an increase of the uncertainty and will also be affected by the base parameters of the extrapolating instrument: the pyrometer.
To help avoid this...
A major issue in template matching is the stability of similarity scores with respect to noise, including unmodeled phenomena. Many commonly used estimators suffer from a lack of robustness: small perturbations in the data can drive them towards uninformative values. This chapter addresses the concept of estimator robustness in a technical way presenting applications of robust statistics to the problem...
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